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IRS suspends tax-preparer rules after court defeat

WASHINGTON -- The Internal Revenue Service has suspended its regulation of tax-return preparers in response to a federal court ruling that said the agency lacked authority to run the program.

Hundreds of thousands of tax-return preparers as a result won’t have to register with the federal government, pass a competency test or meet continuing-education requirements.

“The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program,” the agency said in a statement on its website. “It is considering how best to address the court’s order and will take further action shortly.”

U.S. District Judge James Boasberg in Washington invalidated the regulations in a decision Jan. 18 and enjoined the IRS from enforcing them.

Boasberg, who was nominated by President Obama, wrote that the IRS overstepped its authority by relying on an 1884 law that allowed it to regulate people presenting cases before the Treasury Department.

“Filing a tax return would never, in normal usage, be described as ’presenting a case,’” he wrote. “At the time of filing, the taxpayer has no dispute with the IRS; there is no case to present.”

The rules were designed to impose standards on hundreds of thousands of return preparers who aren’t certified public accountants, attorneys or enrolled agents already licensed to practice before the IRS. The idea, promoted by former Commissioner Douglas Shulman, was to require minimum qualifications and help the agency combat tax fraud.

Accountants and tax-preparation companies such as H&R Block Inc. and Intuit Inc. supported the rules.

Intuit, which makes TurboTax, was “disappointed” by the ruling, Dan Maurer, senior vice president and general manager of the consumer tax group, said in a statement today.

“The public interest is best served when all competing tax-service providers meet high standards,” he said.

John Ams, executive vice president of the National Society of Accountants in Alexandria, Va., said in an interview that the IRS had planned a conference call with affected groups today.

“We were all waiting for the result,” said Ams, a member of an IRS advisory board. “We were all aware of it. I think even the IRS was surprised because there was no hearing.”

The suit challenging the regulations was filed by return preparers, who were assisted by the libertarian-leaning Institute for Justice.